He currently owns a Ford that he bought for £10,000 on finance. He still owes a large amount left on it and has lost money as he owes more that the £7,500 it is worth.
There is always going to be a dealer markup, they buy it from someone for say £8000 then sell it and make a profit. Every car is worth less minute you drive it off the forecourt
His monthly repayment is £300. Apparently the car is losing £400 in value every month.
Both the car value, and the loan will over many years go to zero, the depreciation (loss of value) will slow down, but repayments probably stay constant each month, so if keep car long enough value should be higher than what is owed.
He has found another Ford that he would like to lease instead.
The grass is always greener, and everyone would like a newer, nicer car, and even if he/she changes the car, same thing will apply in next year, so do they change again
This one is a hybrid and is allegedly much better on fuel.
This is a silly argument, spend hundreds a month to save perhaps £30 a month on fuel, don't know their mileage, but maybe they will save one £60 tankful every few weeks
However, it is £360 a month instead of £300
So paying out extra, which might not even be covered by fuel savings, so net out of pocket
My thinking is that it is far better to own the car outright and owe nothing on it each month, than to rent a car that you will never own
Yes, but got to pay for it first, this only applies when you have fully paid off the finance. The problem with long term renting is most people can't afford it when they retire, so getting stuck in a perpetual paying out scenario is never good long term
The dealership he bought his current Ford form have agreed to take it back and write off all of the finance, although he has to make a £10,000 contribution towards it
They won't have written it off, they will have settled outstanding using the £10,000 he gave them, any balance would have gone to pay part of new car. No way is the dealership some sort of charity gifting money, will have £10,000 less in his bank account, or has new outstanding loan instead of old one
I really don’t know what to think. Thoughts please?
It is simple they have rolled over the problem, possibly making the outstanding bigger, but just pushed the day of settlement some months into the future.
I suspect your friend has just reduced Their savings account by £10,000 they have found to pay out, or taken out another loan, either way their net cash assets have gone down £10,000. If the old car was worth £7500, and new car is worth less than £17,500 (the 7500 plus 10,000 funds put in) then lost out
Regarding the lease, simply add up all the payments plus deposit, eg £2000 deposit plus 36 months at £400 = £16,400 which is lot to pay out over 3 years (it's almost £5500 each year). Never look at monthlies if considering the cost (remember comparing the cost, not doing a monthly cash flow). Using this example over 10 years would be over £50,000. Which is obviously lot more than if had bought a £30,000 car and kept it 10 years (even allowing few thousand in servicing and replacement parts over 10 years)
As for PCPs or Hire purchase or other similar loan finance, go onto the car manufacturer website, and will usually find a finance calculator example. Can plug in figures. I know someone similar who got misled by a deposit contribution, it went something like cash price of car £30,000, total payable (which is usually few lines down) £35,000. Basically by financing it, overall would cost extra £5000 (35,000 total less £30,000 price)
They had been tempted by a £2500 contribution, but I then explained we're being charged £7500 in fees in interest. Because ultimately got to pay out £5000 extra, and would have cost same £35,000 if deposit contribution was £4000, and interest of £9000
